Asia Etrading Q2 2012 Electronic Trading Industry Recap

The first half of 2012 is already behind us and this quarter had a number of noteworthy industry developments right around Asia across all segments of the electronic trading ecosystem. Let’s take a very brief look at what happened In The Zone.

Depending on how you’re placed within the electronic trading vertical there were three events that topped the list of developments and they are the closure of Chi-east, the HKEx offer for the London Metal Exchange (LME) and the long awaited start of the ASEAN Trading Link.

Chi-east, the first pan-Asia broker-to-broker darkpool, closed its doors May 31 in a tough equity market that has seen volumes deteriorate in stagnant markets (See page 38 The Autopsy of Chi-east). The independent venue faced other daunting challenges including cost of connectivity to the broker community, special clearing requirements in different domiciles and the acceptance of this kind of service across the industry. We hope that this doesn’t put in a negative light on the viability of exchange competition in Asia. On the subject of competition, it was finally announced after months of speculation that the HKEx came out as the front runner to buy the LME for a whopping HKD 16.67 billion. The offer raises a lot of questions like did they pay too much? Will the marriage work? What will this mean for global metals trading? How involved is the Chinese government? We recognize the HKEx has to do something to sustain its longevity and will be watching this development very closely. Lastly, the ASEAN Trading Link has just gone live after 5 years of discussions and planning. This is a particularly exciting development as the so-called Asian Tigers band together to develop a trading bloc in a region that is generally hard to access, not fully developed in terms of market structure and has over 500 million consumers with a growing standard of living. (See page 4 ASEAN Trading Link Explained).

Of course, much more happened here in Asia last quarter.

Australia
The Australian Securities Exchange began OTC clearing services for equity options. The regulator, the Australian Securities and Investments Commission (ASIC) updated its crossing reporting requirements under its Market Integrity Rules (MIR) and they also announced an upgrade to its market surveillance system which currently supports a single market system. The upgrade will provide for a multi-market system where volumes are expected to increase as algorithmic trading grows.

Cambodia
The Cambodia Securities Exchange began operation on April 18 listing the Phnom Penh Water Supply Authority.

Dubai
The Dubai Mercantile Exchange appointed a new CEO the former BNP Paribas head of marketing for commodity futures in Asia, Christopher Fix. The Dubai Gold and Commodities Exchange signed with Cinnober for its clearing and surveillance technology due to go live Q4 2012.

China
Global exchange operators Deutsche Börse and NYSE Euronext signed agreements with the China Financial Futures Exchange as they attempt to woo future business and inter-listing to their western customers. The Dalian Commodity Exchange (DCE) began simulation of option trading as Liu Xingqiang the exchange president pushes for continued development of their product offering. The DCE also announced a revision to its exchange fees. The Shanghai Stock Exchange (SSE) began taking ETF positions as eligible collateral for margin trading and securities lending. The People’s Bank of China, the central bank, announced April 14 that it would the yuan’s daily trading limit against US dollar currency to 1 percent from 0.5%. Shanghai with Shenzhen established a joint venture with the HKEx to offering new products and services of which a RQFII eligible ETF was one of the first such products.

Hong Kong
Besides the LME announcement the exchange made known it had received regulatory approval for the launch of the first listed RMB currency future. The HKEx also appointed Chow Chung Kong as Chairman, Stephen Marzo as Chief Financial Officer and Henry Ingrouille as its Chief Administrative Officer. The Ministry of Finance of China signed a MOU with the HKEx to begin listing and trading of RMB-denominated sovereign bonds in Hong Kong. The Hong Kong regulator rolled out new short selling regulations requiring positions to be reported. The Hong Kong Mercantile exchange was busy signing BOCOM International Securities and China Everbright as new members and their flagship gold future surpassed 10,000 traded contracts in one day. Goldman Sachs was censured by the exchange back in April. It was related to derivative warrants they had issued that incorrectly calculated the settlement conditions for the product by multiply rather than dividing the exchange rate. GS bought the warrants back at $1.10 on the dollar.

India
SEBI, India’s regulator, issued guidelines on algorithmic trading including a definition, exchange requirements and minimum risk checks. Lambertus Rutten would not renew his contract as CEO of MCX but would remain on the board.

Indonesia
Indonesia’s commodity exchange, the ICDX, has adopted Bloomberg’s Open Symbology and launched 27 currency pair futures contracts as this country continues its rise within the region.

Japan
The Tokyo Commodity Exchange added a new member in Phillip Securities and the announcement that the Tokyo Grain Exchange would consolidate to TOCOM was made in June. It was announced that Masamichi Kono of the Japan FSA would lead IOSCOs new board and the Tokyo Stock Exchange signed an MOU with the central bank of Myanmar for establishing a securities exchange. SBI Japannext began the launch of X-Market, a service for retail brokers to trade on the PTS without the need to adapt to the smaller tick size.

Korea
The Korea Exchange was also busy developing relationship where it signed a MoU with the Bolsa de Valores de Lima. MSCI passed over the country for an upgrade from Emerging to Developed

Malaysia
Bursa Malaysia began a consultation to amend rules for exchange traded bonds and its derivatives arm
revamped its options on Malaysia’s composite index future the FKLI.

New Zealand
Caroline Leckie resigned as Head of Market Supervision at the NZX. Tim Bennett the CEO announced that two new positions would be created at the exchange, CFO and a Head of Cash Markets and the dairy future contract broker 20,000 contracts after 18 months of trading

Singapore
The Singapore exchange was busy as usual extending its REACH program to Chicago and London via BT. They also began to offer cash settled MSCI Indonesia futures, brought some enhancements to OTC clearing for commodities and reported US$67 million in third quarter profits. Concord Futures became a new member and GFI Group executed the first iron ore swap cleared via STP with the exchange. Lastly, Project Mars, their surveillance system went live based on the Delta Stream CEP of First Derivatives. The Monetary Authority of Singapore issued a response to feedback on its proposed regulation of the derivatives market and issued a response to the regulator being accused of regulatory arbitrage. Equinix spent US$28.5 million on the expansion of their Singapore 2 data center.

Taiwan
The GreTai Securities Market, Taiwan’s SME exchange, was busy forging relationships in its push to raise its profile. They signed agreements with NASDAQ OMX, the Tokyo Stock Exchange and Deutsche Börse of Germany

Thailand
The Thai Futures Exchange began trading in its USD currency futures and its parent company launched the Thai Depository Portal on May 1. The local derivatives market continues to expand with KT ZMICO Securities offering Sungard’s Valdi trader front end.